Partnership Firm REGISTRATION

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Partnership Firm Registration

A Partnership firm is a business entity created by persons who have agreed to share profits or loss of the business. Partnerships are a very good choice of business entity for small enterprises wherein two or more persons decides to contribute to a business and share the profits or losses. In India, Partnerships are widely prevalent because of its ease of formation and minimal regulatory compliance. Also, the concept of LLP was introduced only in 2010, whereas the Partnership Act, 1932 has been in existence before the independence of India. Hence, partnership firms are the most prevalent type of business entity wherein a group of people are involved.

Types of Partnership

There are two types of Partnership, registered Partnership and unregistered Partnership. In terms of the Indian Partnership Act, 1932, (Act), the only criterion to commence business as a partnership is the finalisation and execution of a Partnership Deed between the Partners. The Act does not require the Partnership Deed/Partnership Firm to be registered and in other words, does not require the Partnership Firm to be a registered Firm. Therefore various partnership businesses exist as an unregistered firm.

There are no penalties for non-registration of a partnership firm, and a partnership firm can even be registered after formation. However, unregistered partnership firms have certain rights denied in Section 69 of the Partnership Act, which deals with the effects of non-registration of a partnership firm. Some of the disadvantages of an unregistered firm are:

  • A partner of an unregistered firm cannot file a suit in any court against the firm or other partners for the enforcement of any right arising from a contract or right conferred by the Partnership Act.
  • No suit to enforce a right arising from an agreement can be instituted in any Court by or on behalf of a firm against any third party unless the firm is registered.
  • An unregistered firm or any of its partners cannot claim set-off or other proceedings in a dispute with a third party.

Therefore, any partnership should be registered sooner or later.

Partnership Deed Drafting

Partnership Deed Notarization

PAN Card & TAN Number

GST Registration

MSME Registration

GST Return for one Quarter

TDS Return for one Quarter

Advantages of a Partnership Firm

One of the main advantages of a Partnership Firm is that there are very minimal requirements in terms of compliance. For instance, a Company or LLP requires the annual filing of its financial statements with the Registrar of Companies. Such documents filed with the MCA are also made public documents. On the other hand, registered/unregistered Partnership Firms are not required to file any annual returns, and the financial statements of a partnership firm would NOT be made publicly available. Also, the accounts of a registered / unregistered partnership firm are not required to be audited. Whereas, the accounts of a Limited Liability Partnership (LLP)  are required to be audited by a practising Chartered Accountant when the turnover exceeds Rs.40 lakhs per annum or when capital contribution exceeds Rs. 25 lakhs.

Documents Required for Registration of Partnership Firm

 PAN Card

 Passport

 Drivers License

 Aadhar Card

 Voters ID

 Sale deed in case one of the Partner owns the place of business

 Rental agreement copy if the premises are rented

 Copy of latest electricity bill or water bill or property tax receipt

Disadvantages of a Partnership Firm

Partnership firm does not provide its Partners with limited liability protection and does not have perpetual existence. Also, the interest of a Partner in a Partnership firm is not easily transferrable, and the ownership structure does not allow for investment from Angel Investors, Venture Capitalists or Private Equity Firms. Banks / Financial Institutions also prefer to lend to Companies than Partnership Firms as Companies are separate entities and the regulatory requirement for financial reporting of Companies – makes a company more transparent and structured.